Income
Tax in Bhutan
Personal Income Tax:
Liability to tax:
Liability to tax under
this part shall be on:-
a)
Citizens: and
b)
Residents
Taxation of married couples under
minors:
1.
Each spouse shall be taxed separately.
2.
Minors shall be taxed together with one
of the parent’s income.
3.
Where a minor has a guardian appointed
by the Court, the minor’s income shall be taxed separately.
4.
Where a minor has inherited by will, the
income from the inheritance shall be taxed separately.
Taxable income:
Income on which tax is
chargeable under this Part of the Act shall be income in respect of:
a)
Salary including non-licensed consultant fee for an employer in Bhutan or of
work performed in Bhutan for an employer abroad;
b)
Income from Real property in Bhutan;
c)
Divided from sources in Bhutan;
d)
Interest from sources in Bhutan;
e)
Income from cash crops in Bhutan; and
f)
Income from other sources in Bhutan.
Income from salary:
1.
Income from salary shall include everything
received in money or monies worth from the employer in accordance with the
rules prescribed by the Ministry but excluding leave travel concession,
traveling allowance and daily allowance.
2.
Salaries shall be taxed on an accrual
basis.
Income from real property:
1. The
term “real property” means land, building and houses.
2. Rental
income from real property shall be taxed on an accrual basis.
3. Allowable
deductions for rental income shall be follows:
a) Interest
paid on borrowings provided that the loan is taken for the purpose of purchase
or construction of the real property generating rental income and is from a
recognized financial institution;
b) 20
per cent of the rental income for the purpose of repair and maintenance cost;
c) Municipal
taxes and urban house taxes paid; and
d) Insurance
premium paid to a recognized insurance company.
Exemption from tax:
1.
One dwelling unit for an individual or
family used for self-occupation shall be exempt from tax.
2.
Property remaining vacant shall be
exempt from tax on the fulfillment of the following conditions:
a) The
property has remained vacant;
b) Tax
Authorities have been informed in writing of the property remaining vacant; and
c) Documentary
proof to let out the said property is furnishes.
3.
Property remaining vacant, and not
covered under section 7.2 shall be taxed on the fair market rent.
Income from dividends:
1. Dividend means everything that a legal
entity registered under the Companies Act of Bhutan distributes to the
shareholders excluding bonus shares and distribution of proceeds from the
winding up of a company in the year of its liquidation.
2.
Dividend shall be taxed in the year it
is distributed.
3.
Total dividend income from Bhutanese
companies not exceeding Nu.10,000 per annum shall be exempt from tax.
4. Interest paid on borrowings shall be
allowed as a deduction provided that the loan is taken for the purchase of
shares from a recognised financial institution.
Income from interest:
1. Interest for the purpose of this Act
shall mean interest earned from fixed deposits held with financial institutions
in Bhutan.
2.
Interest income shall be taxed in the
year it is received or credited.
3.
Total interest income not exceeding Nu.
10,000 per annum shall be exempt from tax.
Income from cash crops:
1. For the purpose of this Act, income from
cash crops shall mean income from apple, orange and cardamom. The government
may include other cash crops from time to time.
2.
Income from cash crop shall be taxed on
an accrual basis.
3. 30 per cent of the cash crop income
shall be allowed as a deduction to meet the cost incurred to secure the income.
Income from other sources:
1.
For the purpose of this Act, income from
other sources shall mean income from hire of privately owned vehicles, plant
and machinery, and from intellectual property rights.
2. Intellectual property for the purpose of
this Act shall mean income from copyright, patent, trademark, design, model or
any artistic or scientific work.
3.
The income from other sources shall be
taxed on an accrual basis.
4. 30 per cent of the income from other
sources shall be allowed as a deduction to meet the cost incurred to earn such
income.
General Deductions:
1.
Donations are allowed to be deducted
from taxable income within limits and procedures prescribed by the Ministry
provided that the donation is made for one of the following purposes:
a) Relief
fund for natural calamities in Bhutan;
b) Preservation
and promotion of religion and culture in Bhutan; or
c) Promotion
of sporting, education, educational and scientific activities in Bhutan.
2.
Actual cost of education or Nu. 50,000
whichever is lower.
Net taxable income:
1.
Net taxable income for the purpose of
this Act shall mean total income derived from sources under sections 5, 6, 8,
9, 10 and 11 excluding allowable deductions.
2.
Net taxable income shall be taxed as per
the tax rates under Section 14.
Tax Rate:
Taxable Income
|
Tax Rate
|
Where
the total income does not exceed Nu.100,000
|
Nill
|
Where
the total taxable income exceed Nu.100,000 but does not exceed Nu.250,000
|
10
percent of the amount by which the
total taxable income exceeds Nu.100,000
|
Where
the total taxable income exceeds Nu.250,000 but does not exceed Nu.500,000
|
Nu.15,000
plus 15 percent of the amount by which total taxable income exceeds Nu.250,000
|
Where
the total taxable income exceeds Nu.500,000 but does not exceed Nu.1,000,000
|
Nu.52,
500 plus 20 percent of the amount by which total taxable income exceeds
Nu.250,000
|
Where
the total taxable income exceeds Nu. 1,000,000
|
Nu.152,500
plus 25 percent of the amount by which total taxable income exceeds
Nu.1,000,000
|
Set off and carry forward:
1.
Taxes prepaid or deducted at source
shall be adjusted against the final tax unless otherwise specified.
2.
Deficit from one source of income shall
not be offset against another source of income. Deficit for the purpose of this
Act shall mean amount of deductions exceeding the income.
3.
Carry forward of deficit from one income
year to the following year shall not be allowed.
Tax Administration:
Registration:
Persons liable to tax
under the provisions of this Part of the Act shall register with the concerned
Regional Office in accordance with rules prescribed by the Ministry.
Filling of tax return:
1. Persons liable for tax shall file their
tax return before 1st March of the year following the income year with the
Regional Office where registered.
2.
Tax on self-assessed basis shall be paid
at the time of filling the tax return.
3.
Persons whose tax deducted at source is
final shall be exempt from filling the tax return.
Corporate Income Tax:
All Companies
registered under the Companies Act of the Kingdom of Bhutan shall be subject to
full tax liability on all sources of income under the provisions of this Part
of the Act.
Limited tax liability:
1.
Companies or legal entities resident
abroad in which none of the participants are personally liable for the
company’s liabilities, and in which the surplus is distributed according to the
ratio of investment from the participants or legal entities resident abroad are
liable to corporation tax, if they: -
a) Conduct
business in Bhutan through a permanent establishment or participate in business
activities conducted through a permanent establishment. The tax liability shall
include income from letting such business, payments for consultant services,
technical assistance or similar activities, and dividends, royalties or
interest that are effectively connected with the permanent establishment.
Activities in connection with preliminary survey, exploration or extraction of
mineral resources shall be deemed to be conducted through a permanent
establishment from the first day;
b) In
the capacity of owner, co-owner or user receives income from immovable property
in Bhutan;
c) Receive
income as contractor from sources in Bhutan;
d) Receive
income as consultant, technical adviser, or similar activities from sources in
Bhutan;
e) Receive
dividend from sources in Bhutan;
f) Receive
royalties from sources in Bhutan; or
g) Receive
interest from sources in Bhutan.
2.
All income including income received
either directly or through agencies in Bhutan from bi-lateral/multi-lateral
agencies by way of grants or loans shall be deemed to have its source in
Bhutan. Where, however, a person, not being a resident of this country, has a
permanent establishment in Bhutan, the following income shall be deemed to have
its source in Bhutan: -
a) Interest paid or home on indebtedness
in connection with the permanent establishment in Bhutan;
b) Royalties paid by the permanent
establishment in Bhutan for its own use;
c) Technical services or consultant fees
paid by the permanent establishment for services rendered; or
d) Income from immovable property in Bhutan.
Income to be Taxable:
Taxable income for
companies under full tax liability shall include all types of income be it in
money or monies worth.
Taxable income for
companies with limited tax liability shall include only income with source in
Bhutan under Section 2.1.
Allowable Deductions:
General Principle:
1.
For ascertaining the taxable income,
deductions for expenses incurred wholly and solely for the purpose of the
business shall be allowed from the gross income in accordance with the
provisions of this Chapter.
2.
For the purpose of allowable deduction,
the following general principles shall apply: -
a) Proper
books of accounts are maintained;
b) Expenses
are incurred for the purpose of the business or company, and must be supported
by documentary evidence, such as purchase invoices, money receipts, or other
legally valid documents;
c) Where
only part of an expense has been incurred for the purpose of the business or
company, then only a proportion of that expense shall be allowed as a deduction
in the calculation of taxable income; and;
d) Expenses
incurred on transactions not done on an arm’s length basis shall not be
allowed.
3.
The Ministry shall prescribe rules for
allowable deductions in accordance with provisions under this Chapter.
Direct Cost:
Direct costs associated
with the operation of the business that may be directly attributed to the
generation of income shall be allowed as deductions.
Employment Expenses:
1.
Wage, salary, and bonus paid to the
employees shall be deductible as per the limits and rules prescribed by the
Ministry.
2. Contributions made to a Provident and/or
Gratuity Fund for the benefit of the employees shall be allowed as deductions
provided the contributions are invested with a recognized financial institution
in a separate account not accessible to the company. Such contributions are
subject to limits and regulations as may be framed by the Government.
3.
Medical expenses for treatment outside
Bhutan shall be allowed as deductions provided prior recommendation is obtained
from the Referral Committee of the Ministry of Health as per the rules
prescribed by the Ministry.
4.
Staff Welfare expenses within the limits
prescribed bye the Ministry shall be allowed as deductions.
Overhead Expenses:
1.
Preliminary expenses shall be allowed as
deduction on the fulfillment of the following conditions:-
a) Incurred
prior to commencement of the business and directly related to the business; and
b) Contributed
to the actual commencement of the business.
2.
Deduction under Section 13.1 shall only
be allowed in equal installments over a period of first 3 years after the
commencement of the business.
3.
Costs incurred for Research and
Development in connection with the business shall be allowed as deductions or
depreciated in accordance with limits and rules prescribed by the Ministry.
4.
The following general expenditure for
the business shall be allowed as deductions:-
a) Printing
and stationary expenses;
b) Postage
and telegram expenses;
c) Telephone,
trunk calls and telex charges;
d) User
charges;
e) Administrative
fees and charges; or
f) Any
other expenses of similar nature.
5.
Insurance premium relating to any asset
owned by and used for the purpose of the business shall be allowed as
deductions if not specified under Section 29.3
6.
Allowable deductions for maintenance and
repair costs shall include:-
a) Current
repair costs relating to any asset owned by and used for the business provided
that the asset is shown in the balance sheet and fixed asset register;
b) “Current
repair cost” shall refer to any cost incurred to maintain the asset in a
consistent working condition, without modifying the nature of the asset; and
c) Major
repair and enhancement work that may modify or significantly improve the asset
so that the original nature of the asset is altered shall be treated as capital
expenditure and depreciated.
7.
Expenses incurred for hire of plant,
machinery and vehicle shall be allowed as deductions provided that the expense
is incurred for the purpose of business.
8.
Rental expenses incurred on property
used for business purpose shall be allowed as deductions.
9.
Municipal and Motor Vehicle tax shall be
allowed as deductions provided the asset is owned by and used for the purpose
of the business.
10.
Trade license registration and renewal
fees shall be allowed as deductions.
11.
Fees and expenses related to legal or
professional work carried out on behalf of the business shall be allowed as
deductions.
12.
Annual membership fees and subscriptions
paid for the purpose of the business shall be allowed as deductions.
13.
Interest paid on loans shall be allowed
as deductions provided that the loan is:-
a) taken
from a recognized financial institution;
b) used
for the purpose of the business; and
c) within
the debt equity ratio 3:1 including working capital.
14.
Interest paid on legally recognised
negotiable instruments shall be allowed as deductions provided that it is in
keeping with the Company’s Act of the Kingdom of Bhutan.
Sales and Marketing Expenses:
1.
Commission on business transactions
supported by documentary evidence shall be allowed as deductions.
2. Entertainment expenses directly related
to sales promotion of the business shall be allowed as deductions on actual
expenses incurred or 2 per cent of assessed net profit, whichever is lower.
3.
Publicity and advertisement expenses
shall be allowed as deductions on actual expenses incurred or 2 per cent of
assessed gross income, whichever is lower.
Bad debts:
1.
Bad debts less than Nu.25,000 per debtor
shall be allowed as deductions on the fulfillment of the following conditions:-
a) Tax
has been paid on such debts in the relevant previous years;
b) The
debt is not less than 5 years old; and
c) Bad
debt would be incorporated as income if recovered in the subsequent years; or,
d) Where
the debtor is declared bankrupt under the Bankruptcy Act of the Kingdom of Bhutan;
or,
e) Scheme
of arrangement has been made under the supervision of a Judge.
2.
Bad debts exceeding Nu.25,000 per debtor
shall be allowed as deductions on the fulfillment of the following conditions
:-
a) Tax
has been paid on such debts in the relevant previous year;
b) Judicial
recourse has been exhausted in respect of the debt;
c) Bad
debt would be incorporated as income if recovered in the subsequent years; or
d) Where
the debtor is declared bankrupt under the Bankruptcy Act of the Kingdom of
Bhutan; or,
e) Scheme
of arrangement has been made under the supervision of a judge.
Miscellaneous/ General Expenses:
1. Revenue
losses due to theft, fire, and natural calamities shall be allowed as
deductions.
2. Bhutan
Sales Tax, Customs, Excise Duty and royalty paid on goods for use in the
business shall be allowed as deductions provided it is not capitalized under
Section 29.3.
3. Carriage
and freight expenses in incurred wholly for the purpose of business shall be
allowed as deductions. Where such charges are incurred for the transportation
of fixed assets to their place of use, this shall be treated as part of the
capital cost of acquiring the assets and shall be depreciated as prescribed
under Chapter 6 of this Part.
4. Donations
shall be allowed as deductions within limits prescribed by the Ministry
provided that the donation is made for one of the following purposes:-
a. Domestic
fund for natural calamities in Bhutan;
b. Preservation
and Promotion of religious and cultured purpose in Bhutan; or
c. Promotion
of sporting, education and scientific activities in Bhutan.
Carry forward and offset of losses:
Losses sustained in an
the income year may be carried forward and adjusted in the subsequent 3 income
year as prescribed under rules thereto.
Deductions not allowed for tax purposes:
The following expenses
shall not be allowed as deductions:-
a)
Domestic and private expenses on food, clothing, marriage etc.;
b)
Personal administrative fees of employees;
c)
Payment of dividend or profit distributions to shareholders, partners and
properties before tax;
d)
Creation of or adjustments to reserves, except in the specific cases that may
be prescribed under this Act;
e)
Life and Health insurance premium excepts schemes that may be approved by the
Government;
f)
Business, Corporate and Personal income Tax;
g)
Penalties, fines, penal interest, forfeiture, etc.;
h)
Donations other than those authorized under this Act;
i)
Bad debts not fulfilling the conditions under this Act;
j)
Any sum, by whatever name called, payable for the use of license or permit
through public auction or tender;
k)
Any other expenses not related to the business.
Rate and Calculation of Income Tax:
Tax Rates
1. The
rate of income tax for companies under full tax liability shall be 30 per cent
on the net profit.
2. The
rates of income tax for companies under limited liability shall be as follows:-
a. Permanent
establishment at the rate of 30 per cent of the net profit;
b. Contractors
and consultants at the rate of 3 per cent of the contract value;
c. Income
from interest and royalty at the rate of 5 per cent of the gross amount ; and
d. Income
from divided at the rate of 10 per cent of the gross amount.
Registration of taxpayers and
Filling of Tax Return:
Tax Registration:
All
companies shall register with Department within 3 months from the date of
establishment as per rules prescribed by the Ministry.
Filling of Income tax return:
All
companies shall file an income tax return for the income year within 31st of
March of the succeeding year in accordance with the rules prescribed by the
Ministry.
Payment of taxes:
All
companies shall pay tax on the basis of the tax return at the time of filing
with the Regional Office where registered as a taxpayer.
Exemption from filling:
Companies,
whose tax is final, in accordance with Section 2.1 Sub-sections (c) to (g),
shall be exemption from filling a tax return.
Correction of tax return and
postponement of filling:
1. A
taxpayer may correct a tax return within fifteen days from the date of
submission of tax return on grounds and reasons acceptable to the Department.
2. The
time limit for filling a tax return may extend on written request in accordance
with rules prescribed by the Ministry.
3. Postponement
of filling shall not postpone the payment of tax. In such case, the amount
payable within 31st March shall correspond to tax paid for the previous year or
the self-assessed tax whichever is the higher.
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Note:
Information
placed here in above is only for general perception. This may not reflect the
latest status on law and may have changed in recent time. Please seek our
professional opinion before applying the provision. Thanks.
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